Construction work on the up but housing remains centre stage

Author: Tom Crane – Glenigan economist (@TC_Glenigan)

Amid the coffee and bacon rolls at the latest Glenigan Breakfast Briefing last Thursday (15 May) there seemed to a clear consensus that construction work is picking up. This was especially heartening given the range of guests at the event, with main contractors, materials suppliers and investors all in attendance.

Nowhere has the upturn been more apparent than in house building, so it was fitting that keynote speaker Hilary Benn MP, Shadow Secretary of State for the Department of Communities and Local Government, kicked off the event by presenting Labour’s views on the challenges surrounding Britain’s housing supply. Mr Benn referenced research by Ipsos MORI which found that 80% of people agree that Britain is facing a housing crisis, but 45% disagree that new homes need to be built in their local area. He spoke of the need to ensure that every local authority has a plan in place for housing development, and the equally important but much more difficult aim of promoting community engagement and support for new housing.

This would not be possible, Mr Benn said, without ensuring that sites are built once planning permission has been given, with echoes of Labour’s ‘use it or lose it’ policy. This viewpoint clashes with a recent survey by the Home Builders Federation (HBF) which found that just 4% of plots owned by large house builders have an implementable planning permission. Only 31% of plots had outline permission or were awaiting discharge of conditions by local authorities, while 2% were not economically viable.

When asked if Labour were planning to reform the National Planning Policy Framework (NPPF), the government’s simplified planning rulebook, Mr Benn said: “No we wouldn’t change it because I think the sector wants some certainty and I think that is very important.”

This bodes well for continuity after the 2015 general election and more generally the opposition MP seems to agree with coalition policies that aim to help smaller house builders and self-build. We await with bated breath the final report of the Lyons Housing Review, Labour’s ‘roadmap’ of policy changes required to address the housing shortage, particularly whether it recommends more radical options.

However, Mr Benn’s stance did not go down well with all commentators, with The Telegraph reporting that Labour’s backing of the NPPF “will dismay communities across England who are fighting housing schemes which are being allowed under the Coalition’s National Planning Policy Framework”.

The question and answer session brought the shadow cabinet minister onto apprenticeships and a shared training scheme in Leeds brought praise from both him and the event’s chairman, Stephen Ratcliffe of the UK Contractors Group (UKCG).

Glenigan’s Economics Director Allan Wilén then took to the stage, taking delegates through the opportunities and continued challenges for those trying to win work. UK economic growth of at least 2% is a pre-requisite for growth in the construction industry, said Mr Wilén, a benchmark which the Office for Budget Responsibility (OBR) forecast will be exceeded in each of the next five years.  Unveiling Glenigan’s latest forecasts of widespread expansion, Mr Wilén tipped the industrial sector to be particularly positive this year, while further ahead promises of increased government investment will drive opportunities in infrastructure.

Inevitably the next round of questions brought the debate back onto the housing market, with Mr Wilén stating that while increased house building could dent house price inflation over the longer term, for the next few years house prices are likely to see continued rises as new supply continues to lag behind growth in households.

Don Ward, Chief Executive of Constructing Excellence, sounded a more cautionary note, warning that the whole supply chain is now at risk from those who have won work on unrealistic fixed price contracts. At a time when tight margins are squeezing the length of the supply chain, he noted that the industry can still achieve massive cost efficiencies through collaborative working, and pointed to innovative solutions such as offsite manufacture. More generally he argued convincingly for procurement to focus on value rather than cost, highlighting that construction costs pale against the potential outcomes from well designed and delivered buildings.

The day’s speakers presented a future as bright as the early morning conversation about current work. The signs are that the general election will not see a step change in housing policy, while activity is expected gather pace across the commercial and infrastructure sectors.

With the long term construction outlook looking more secure than at any point over the last five years, now is the time for the industry to invest in working smarter and leave clients in no doubt of its value.

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